Lessons from WPPSS to apply to Sound Transit?

Lessons From WPPSS
A $2.25 billion fiasco illustrates the drawbacks
to "business as usual" approaches for major social decisions
by Elaine Myers and David Lee Myers

One of the articles in Governance (IC#7)
Autumn 1984, Page 28
Copyright (c)1984, 1997 by Context Institute


The previous articles have emphasized possible governance processes for small, voluntary groups. While this may provide a cultural foundation, what about "big time" decisions? The following article explores the history of a set of major decisions (that have now turned sour), and indicates that many of the qualities discussed in the previous articles could have been a great help.

David Lee Myers is an elected Commissioner of Wahkiakum Public Utility District, a county-wide, publicly owned electric utility in southwestern Washington. He has represented Wahkiakum on the WPPSS Board of Directors since mid 1981. When he is not trying to straighten out billion dollar mistakes, he is a superb professional photographer.

Elaine has observed many of the WPPSS meetings, and takes credit for originally getting David to seek the office. Regular readers of IN CONTEXT may recall description of their rural lifestyle in the Spring 1983 and Spring 1984 issues. Copyright ©1984 by Elaine and David Lee Myers 1984.

The Setting

THE WASHINGTON PUBLIC POWER SUPPLY SYSTEM (WPPSS), better known as "Whoops", is a twenty-three member consortium of publicly-owned electric utilities in the state of Washington. Its Board of Directors consists of one representative (each a locally elected utility commissioner) from each of the twenty-three member utilities. It builds and operates power generating plants, or at least it tries to, under contracts with the Bonneville Power Administration (a federal power wholesaler), a hundred public utilities, and four investor-owned utilities.

WPPSS is most famous for defaulting on 2.25 billion dollars of bonds for its canceled projects Washington Nuclear Plants (WNP) 4 & 5. At the time, this was one of the nation's most spectacular nuclear construction failures. A couple of years later, WPPSS has plenty of company.

WPPSS represents a major fiasco of human governance. Several billion dollars have been spent constructing now- canceled projects. The nation's largest ever lawsuit over securities (bonds) is trying to determine who should absorb the loss. Several billion more have been spent on projects of uncertain future. Electric rates over large parts of the Pacific Northwest have been doubled with little benefit to anyone. A federal agency and several investor-owned utilities are near insolvency (not only due to WPPSS). WPPSS issues have distracted Washington state political leaders from their other work for several years. Hundreds of utility leaders in the Northwest have had to focus their creative efforts on coping with the WPPSS-related problems, to the neglect of other issues, for several years.

Like most failures, WPPSS has much to teach us. In telling the story of this broadly shared cultural mistake we hope to share our understanding of what went wrong, what positive actions helped to limit the damage, and how similar situations (of which there are many) could be better governed.
Old Assumptions

Nuclear plant construction projects have encountered trouble all across the country. Federal agencies, investor- owned utilities, and publicly-owned utilities have all stumbled. With skyrocketing interest rates, inflating construction costs, and new safety demands on an immature technology, the times have not been good to nuclear power. WPPSS makes an especially good case study because it is a complex public agency. Many persons and interests contributed to the process, and its workings are open to view.

As a study in governance this would be a dull story if the causes of the fiasco were evil and greed. But not so. The government officials who were trapped into these errors were men of idealism who lived out an ethic of public service. Those who oversaw or participated in planning and management included part-time elected officials, federal career bureaucrats, and professional engineers and lawyers. They achieved their positions through good records of success. They got into this trouble by the same methods which had previously served them well - a sobering thought for all of us. They had encountered a problem whose resolution required a change in basic assumptions - not just doing things better, but doing different things - and that is hard for most people to do.

To understand how it all began, think back to the early 1970s. The Pacific Northwest had vast amounts of cheap hydro generated power. The region's economy developed to use large amounts of cheap power. Partly in response to this cheap power, the regional economy was growing, using an additional seven percent of electricity each year during the early 1970s. Seven percent per year compounded means a doubling of usage in ten years. Utility planners felt a responsibility to provide the electric power to allow this economic growth to continue. They responded by planning five WPPSS and three other, private utility owned, nuclear plants, and several coal plants. What was on their minds as they proceeded?

Some of the old assumptions that governed the behavior and decisions of the old guard included faith in technological progress, bigger is better, reliance on experts from inside the business, allocation of electricity only by price, do it with Other People's Money numerical models of social phenomena, and what you can't put into numbers, ignore.

Rural and small town commissioners deferred to the decisions made by the experts, decisions often based on a narrow scope of understanding. Predictions of future behavior and need were based on models that used straight line extrapolation from past points. Factors which could not be rendered as "reliable" numbers were simply ignored. For instance, the tendency of customers to buy less electricity as the price increased (price elasticity) was omitted because they didn't know exactly how much less would be bought. Later this would turn out to be one of two or three key errors.

An unquestioning belief in technological progress committed billions of dollars on incomplete designs. Specific plant designs were not completed at the time construction was begun. Since each nuclear plant in the U.S.A. is its own design, there had been too little experience with similar plants. Such blind faith in technological progress meant that much work had to be undone, over and over, leading to worker demoralization, poor craftsmanship, and lack of construction progress for the money spent.

Our culture as a whole believes that bigger is better and centralized is better. Imagine a visit to a BPA system control facility. Full color computer screens monitor the region's generators, transmission lines, and the delivery of power to local utilities. Wall maps as big as the side of a house map out the system with colored lines and lights to indicate status - like a Pentagon war room. There's a morale of pride in the refined control over thousands of miles of system. They love it. Can such people understand generators at every home? Can they let go of their control and power?

The decision-makers here were almost entirely governmental and corporate. The publicly-elected decision-makers tended to be men who were successful in business during the 1950s and 1960s. They had seen greater usage lead to lower prices. Live better electrically. They accepted the assumptions listed above, assumptions that had worked well for several decades. But this decade was to be different.
Forces Of Change

A profound shift in cultural assumptions requires that several forces converge on the situation. By the end of 1980, the WPPSS board had begun to feel various pressures pushing for a change in direction.

The five nuclear power projects had fallen far behind schedule, with increasingly large cost over-runs. In 1979, they had spent money at the scheduled rate, and achieved essentially zero progress in construction. A study of the minutes of meetings shows that frequently one or two Directors would express concern that things were not going well. They would ask questions and perhaps request a study. But typically their concern was not echoed by a majority of Directors and their efforts remained ineffective. Often the problems were blamed on outside forces such as the Nuclear Regulatory Commission and labor unions. In response to the Three Mile Island accident, NRC construction requirements were increasing as fast as construction progressed, and much previously done work had to be changed. The partial truth in those excuses made it difficult for a majority of the Board to see the problems inherent in their projects and to see their management deficiencies.

At the same time, editorials in Northwest papers began to call for investigation and governmental action. The Washington state legislature began an inquiry into the management of the projects. The majority on the WPPSS Board of Directors, while beginning to admit that some changes had to be made (like a new managing director) still felt that the plants must be built, that we would soon run out of electricity, and we had to have more.

In all the discussion of the problem (that nuclear power plants were harder to build and more expensive than originally anticipated), the underlying assumption was doing better what we are already doing. The few lone voices who questioned this assumption were simply ignored. For instance, one WPPSS Director suggested a change from debt financing to more of a pay-as-you-go system, with gradually increasing rates. The people whose behavior (electricity consumption) was causing the expense (nuclear power plants) to be incurred would pay that expense. Also, they would notice sooner if costs were becoming excessive. These thoughts were overridden by the desire to delay as long as possible the price increases.

While lone voices were ignored, outside grass roots/activists groups were seen as the "enemy." Directors lacked the curiosity to seek any truth in their arguments. Public comment on a proposed policy was taken after the WPPSS Board had voted. The citizens could only approve or disapprove of the institutional action, without meaningful input of ideas or information.

Well, if the Board did not choose to listen to the citizens, perhaps they could be forced. The Don't Bankrupt Washington group began an initiative campaign, I-394, to require a public vote on future bond sales.

Regional Power Act Meanwhile (1975-1980), back in Washington D.C., another set of forces was gathering. In an attempt to form an explicit and conscious method for dealing with the looming energy (electric) shortage, the Pacific Northwest Electric Power Planning and Conservation Act was drafted. Citizen groups that had been activated by the oil shortage in 1973 contributed information, ideas, and economic models to provide some alternatives to the old assumptions seen above. The Northwest Conservation Act Coalition (NCAC), a network of groups such as the Sierra Club and the League of Women Voters, played an important role in redefining the methods used to achieve the goal of human progress. Actually, the bill was initiated partly to arrange funding for WNP 4 & 5, and then the alternative ideas supplanted the nuclear plants in the bill. Conservation was defined as a power supply resource and was given a 10% advantage over other power sources when evaluating the least expensive resource to develop. When costs were the same, renewable energy sources were to be given priority in development over non-renewable resources. Outside ideas (previously ignored) became part of the rules governing the actions of the WPPSS Board.

(We've pointed out some good features of the Regional Act, establishing new priorities for energy strategy. There are also some very troublesome features - how the costs and benefits are divided up - but that's another whole article.)

Unfortunately, these new definitions and methods were all cast in another old assumption, that we were going to have an electricity shortage, and we would have to allocate scarce resources. Almost before the ink was dry on the signature to the act, the region was awash in a surplus.

Weatherization With various starts and stops, political maneuvering and rule changes, the Bonneville Power Administration (BPA) and the local utilities began to implement the conservation mandate of the Regional Power Act.

As the news media began to focus on the energy problems and costs, public resistance to continuing the building program grew. As a person close to the action, I (Elaine) was often asked what a person could do to shut down WPPSS. I replied, "Weatherstrip your windows." This was never greeted with much enthusiasm. (As efficient as conservation might be, it has no sex appeal.) I explained that the WPPSS Board was now legally bound to match construction with demand, and if we didn't want the plants built, we must change our behavior so the region didn't need the power.

Under BPA programs, electrically heated homes in the Northwest have been insulated and weatherized, creating construction jobs, saving ratepayers money, and continuing the energy surplus.

Termination Of Plants 4 & 5 In 1980, WPPSS hired a new manager who was far more experienced in managing complex projects. He wrote new construction budgets, far more accurate than previous ones.

The funds required to complete all five projects suddenly looked more like $25 billion than $16 billion. Wall Street underwriters who had arranged all financing so far, said they couldn't do it, they couldn't sell that many more WPPSS bonds. Talk about internal contradictions! $2.25 billion spent on projects 4 & 5, and WPPSS can't raise enough money to finish.

The utility contracts providing financial support for the projects had no provisions for funding a period of "suspended animation" or "mothballing" of the projects. Bonds could not be sold for that purpose, and efforts to make ad hoc funding arrangements failed. So in January, 1982, projects 4 & 5 were terminated.

Meanwhile, the Washington state legislature was adding its influence to the situation by changing some of the players in the game. Starting with a legislative inquiry in 1980, they restructured the governing board of directors of WPPSS from all elected officials to mostly appointed industry experts (do the old way better).

As the bonds sold to finance the power plants (not yet producing any power/revenue) started to come due, revenue had to be increased by raising the rates. Price elasticity, ignored back in the projections of 1976-1980, began to shape electrical demand downward, creating more internal contradictions. Although BPA calculated rates to produce the needed revenue, the decrease in demand was sufficiently great that the anticipated revenue did not materialize. There was a possibility that raising the rates still higher would actually decrease the revenue collected. This is known as the death spiral in the rate/revenue relationship, and suggested that there were inherent limits to the rate increases that the regional economy could bear.

The increased rates (perceived cost doubled in about one year, 1981-82), occurring at the same time as the termination of two power plants ($2.2 billion down the hole) ignited a ratepayer revolt. Angry consumers are a very mixed group. On the one hand, they did succeed in recalling some of the least competent of the old guard commissioners, and focusing community attention on the upcoming November 1982 elections. However, they tended towards a very negative agenda (hell, no!), and a short attention span dictated by the evening news and newspaper headlines. The increasing public debate at utility meetings, and the letters to the editor in local papers contained a mix of reasoned analysis and hysterical ranting. The new WPPSS manager, while setting new heights in project productivity, was constantly berated for the failures of his predecessor.

The elections in November 1982 accelerated the acceptance of new points of view. Many of the older commissioners, men who had been successful in small town business in the 1950s and 1960s, were replaced by people who had been urban activists, city planners, and back-to-the-landers of the 1960s and 1970s. New decisions could be made by people not associated with the mistakes of the past.

In the same election, I-394 passed, 2 to 1, creating more external pressure for change in the construction program. The rules for selling bonds and financing projects were changed to incorporate the public's consent. WPPSS took the new law to court, claiming it could not apply to projects underway. Though WPPSS eventually prevailed, the pressure on it had been very significant.

Another feature of I-394 was a requirement for a cost- effectiveness study of the plants, before any more bonds could be sold. This became the most detailed calculation of the relative costs of the nuclear plants and other energy strategies. Public comments were taken on the methods and assumptions for the computing. Even when the results are flawed, such a process reveals the assumptions and values behind policy decisions. Thus any proposal must be more thoroughly thought out, and may be more knowledgeably debated.

Default And Litigation Internal contradictions once awakened soon acquire lives of their own. According to the Participants' Agreements of utilities contracted to support WNP 4 & 5, those utilities seemingly guaranteed bond payments in the event of termination. A very expensive appearing prospect. The power supply which had been intended to save all the utilities from crippling shortages now threatened to price some of them out of the market into insolvency, taking their customers with them. So they sued, claiming the contracts should not be binding. Soon the bond Trustee, Chemical Bank of New York, was in court against all the participating utilities, seeking declaratory judgment that the utilities must pay. Much to most everybody's surprise, the state Supreme Court soon ruled that the contracts were flawed and the utilities were not bound to repay the bonds. Holders of a couple billion dollars of bonds were left in the lurch. WPPSS defaulted on its bond obligations in July 1982, and the bondholders sued, claiming fraudulent issuing of securities.

The securities case is big. Alleged damages against each utility far exceed its worth. Evidence to be considered includes 140 million pages of documents. Years will be required for any conclusion to be reached. Litigation is not an efficient form of governance. It's "nyah nyah" and "gotcha," when what we need is to rebuild cooperation and optimism.

The Regional Plan The Regional Power Act created the Regional Power Council, eight members appointed by the states' governors, to plan the region's power supply and level of conservation effort, together with other uses of rivers, such as fish and wildlife. Many competing uses were to be balanced in a single, whole-systems plan. The Council began work on this Plan in 1981.

The process of developing the Plan provoked intense argument by governmental agencies, corporations, and interest groups. Citizen groups such as NCAC and Natural Resources Defense Council developed alternative models for future plans. The institutional insiders (establishment/money/power) drafted Plan A as they interpreted the Regional Power Act. The citizen outsiders (passion/voluntary/vision) offered Plan B based on new goals and methods. The result was a hybrid Plan.

Slowdown Of Plants 1 & 3 The litigation destroyed Wall Street's confidence in WPPSS, so it couldn't sell bonds for continuing construction of plants 1 & 3. This became one reason they were soon to be slowed down.

There was also a decline in power demand (1981 -1982), which suggested persistent regional surpluses. We wouldn't need the plants finished until several years later than scheduled, if ever. Although there was new worker pride on the job, and the projects had become leaders in efficient management, construction was suspended. Since they are covered by a different set of contracts, provisions were being made for the possible restart of construction. Their future is one of the hottest regional debates today.
The Present

Energy policy is being conducted more openly and democratically than when the WPPSS nuclear plants were begun. WPPSS Board committee meetings are open to the public and attended by reporters and interest group leaders. The Regional Council meets only in public. BPA conducts Town Hall Meetings to explain its policy options and collect comments from the public, before making its decisions. Ratepayer protest groups, and alternative policy groups have been vigorous. Many public utility official elections have been contested. It will be a challenge to sustain this energetic public involvement as the headline crises recede, yet we can only benefit if we do.

Events continue to expose hidden assumptions, which may warrant re-evaluation. The key one is that human progress is seen as synonymous with material progress. A delay in building power generation is seen as giving up on progress. Other frontiers for the human spirit are forgotten. This view is so widespread in our culture that it does not surprise. Harder to understand are the many people who think of conservation as sacrifice. As if insulating one's house and having more money left over after paying the utility bill is being worse off.

Another erupting issue is the extent to which the federal government, through the Bonneville Power Administration as power wholesaler, should use residential consumers as a revenue resource to guarantee conditions for profitable operation of major private industries and private utilities. For example, residential customers may be asked to support construction costs of plants needed to supply power not so much for themselves as for the region's aluminum industry. Industry would not guarantee to buy the power.

For several decades utilities have relied on centralized power generation and control. The economic risks of building the largest generating plants have become unacceptable. Also, a system relying on a few large plants is more vulnerable to operational failures. Increasing numbers of utility leaders are taking an interest in dispersed, smaller units of generation. In the near future, new micro-electronic equipment may allow practical coordination of large numbers of these units.

It is our tradition to resolve social needs by seeking new technology, new equipment, new materials, new processes, and more of all of them. This strategy is becoming more expensive and increasingly limited by material supplies or by pollution concerns. It is going to look more effective to examine and modify our style of action. Self examination makes us feel very anxious, whereas building new toys is lots of fun. But when the toys get too expensive, we'll learn.

Strange as it may seem, centralized, technological activities are often seen as "masculine," and decentralized or behavioral solutions as "feminine." This presents an emotional barrier to many men's acceptance of some alternatives like insulation, passive solar building design, and small generation sources.

The securities litigation has come to dominate utility decision-making. The dominant concern is "cover your ass:" yours and your utility's. Don't make any statement or decision now which admits or even suggests past error or inadequacy. In this way the lawyers have almost taken over utility management. Any new policy must first be examined in light of court defense of past policies. Sure makes it hard to change direction.

The history of the WPPSS fiasco cannot be openly explored in detail because everybody involved is in court. Say something and it may be used against you. So, many people keep quiet. Just for instance, this article lacks specific names because of the litigation, and lacks specific numbers and anecdotes because my own (David's) reference materials and meeting notes are in out-of town law offices.
Conclusions

It is uncertain how far, how fast the described shift will go. Opponents are still vigorous.

There are three points we especially emphasize:

The decision-making process in any particular business needs continual invigoration by infusion of fresh factors. These include personnel neither scarred nor fettered by involvement in past decisions, new institutional arrangements to sidestep stale routines, and a wide range of fields of thought and expertise.

Several factors are needed simultaneously to change a major, sustained way of doing business:

* The system must start to stumble and fail in its own terms, for internal reasons.
* Someone has to develop an attractive alternative.
* Great pressure must be applied from outside.
* Some new people are required.

Aggregate and individual behaviors closely reflect one another. Strengths and weaknesses of the overall social organism are those of the bulk of individuals within it. A democratic governmental body is shortsighted and materialistic only because its citizens are. Likewise it can be farsighted and humanitarian - if enough citizens want that.

Though our story has revolved around Northwest energy policy, the dynamics of the governance issues are typical for our society. We hope our account helps us all to better understand other unfolding cultural dramas, to nurture the positive directions, and to effectively push on vulnerable points of the old systems.

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The WPPSS Default. A foreshadowing for Sound Transit?

Monday, Feb. 13, 1984
Pulling the Nuclear Plug
By Peter Stoler

A chain reaction of setbacks hits the industry, but the need for power remains It began with such promise. The scientists and engineers who had shown the terrible destructive power of the atom at Hiroshima and Nagasaki were going to harness its tremendous force in an atoms-for-peace program. They would build nuclear power plants producing electricity so easily that it would be "too cheap to meter." At a time when technology promised an almost boundless potential for improving humankind, nuclear power seemed so modern.

But today the concrete cooling towers standing in open fields or alongside rivers appear to many as monuments to a god that failed. Much of the public fears that nuclear plants are sending out mysterious and unseen radiation that will maim generations to come, or may somehow explode.

Instead of providing low-cost energy, many of the plants are managerial and financial disasters that have produced higher electric bills. Moreover, a new generation accustomed to seeing the dark side of technology sometimes views nuclear power as the future that did not work.

Opponents and critics of nuclear power are ready to write its obituary. But they are likely to be disappointed. Reports of the industry's death are premature. This year the U.S. will get 13% of its electricity from the atom; by the mid-1990s, according to some estimates, that figure will have risen to about 20%, and nuclear power will be the nation's most important source of electricity after coal.

Nevertheless, the nuclear industry is not well. Like a patient with a chronic disease, it has been ailing for more than a decade. It has been suffering seriously for nearly five years, ever since a 1979 accident turned the nuclear plant at Three Mile Island, Pa., into a focal point for public fears and protests. Now a series of reversals has worsened nuclear power's condition still further.

The first of the new setbacks occurred last July when the Washington Public Power Supply System, or WPPSS (more widely known by the satiric sobriquet of "Whoops"), defaulted on $2.25 billion worth of bonds. The consortium of 23 electric companies, which had postponed or canceled construction of four of its five proposed nuclear power plants, had sold the securities to help finance two of the facilities. The WPPSS default, the biggest municipal bond failure in history, shook financial markets and raised questions about the ability of utilities to manage nuclear plant construction.

The industry might have recovered from the WPPSS debacle, but in recent weeks it has suffered a series of other reversals. In mid-January the federal Nuclear Regulatory Commission denied Illinois' giant Commonwealth Edison a license to operate its new Byron plant, which was nearly completed and had cost $3.7 billion. Reason: the NRC said it had "no confidence" in the quality-control procedures for some of the construction. Three days later, Public Service Co. of Indiana announced that it was canceling all further work on its 2,260-megawatt (MW) Marble Hill plant, half completed at a cost of some $2.5 billion. The loss has put a severe strain on the company's finances. The utility said last week that it would eliminate 100 jobs over the next month. In addition, 573 of the utility's remaining 4,000 workers will go on a four-day week.

A third blow fell when Cincinnati Gas & Electric and two partner companies announced that they were halting further nuclear construction on their long-troubled William H. Zimmer plant at Moscow, Ohio. They plan to convert the 810-MW facility, 97% finished at a cost of $1.7 billion, into a coal-burning installation. A fourth shock to the gasping industry came when a Pennsylvania public utilities commission led overextended Philadelphia Electric to halt construction for 18 months on one of its two Limerick reactors, where $3 billion has already been spent.

The nuclear power industry had anxiously been watching as economic recovery slowly nudged upward the demand for electricity. Now, utility executives concede, the industry will do well just to hold its own. No one expects U.S. utilities to shut down any of the 82 nuclear plants currently in operation, but no one is betting against cancellation of some of the 48 plants in various stages of construction around the country. The utilities have not placed an order for a new nuclear plant since 1978, and they are unlikely to do so in the near future. Says Robert Scherer, chairman of Georgia Power and head of the U.S. Committee for Energy Awareness, a pro-nuclear group: "No utility executive in the country would consider ordering one today—unless he wanted to be certified or committed."

The U.S. nuclear power program did not reach its present condition suddenly. The illness appears to have been congenital and may have been caused, at least in part, by the great expectations that greeted its birth.

James Newman, a congressional counsel who helped draft the Atomic Energy Act of 1946, said: "This new force offers enormous possibilities for improving public welfare, for revamping our industrial methods and for increasing the standard of living." Proclaimed David Deitz, Pulitzer-prizewinning journalist and author of the 1945 book Atomic Energy in the Coming Era: "The day is gone when nations will fight for oil." Before the U.S. had time to consider fully the potential problems involved with the new form of energy, the nation leaped into the nuclear age.

The industry started off small: in 1957 the Government beached a submarine reactor at Shippingport, Pa., and converted it into a power station with an output of 60 MW. The earliest American nuclear facilities were built by private companies, such as General Electric and Westinghouse, as loss leaders to convince utilities that atomic power was the future. They needed little convincing. By the end of 1967 the U.S. had 28 times as much nuclear capacity on order as it did in operation. The capacity of plants under construction increased from 300 MW in 1962 to 700 MW in 1965 and 1,150 MW in 1972. "It is clear," said NRC Commissioner Victor Gilinsky, a frequent critic of the industry, "that we got ahead of ourselves in expanding and scaling up the applications of nuclear power as fast as we did."

It soon became obvious that building the plants was a more complicated task than the prophets of nuclear power had thought. Many units were plagued by problems, thereby raising fears about the plants' safety. A 1975 accident at the Browns Ferry nuclear reactor in Alabama intensified these concerns by showing how human and mechanical error could combine to create a potentially serious situation. In that accident, a worker using a candle to search for air leaks managed to start a fire in the plant's electrical wiring. This knocked out five emergency core-cooling systems and briefly reduced the plant's protection against a meltdown, which can theoretically occur if the core overheats and its molten uranium fuel drops through the bottom of the reactor.

The Browns Ferry accident fed a growing antinuclear movement. It included environmentalists such as the Sierra Club, Friends of the Earth and Citizens Against Nuclear Power, a handful of doctors and several scientists, as well as movie stars like Jane Fonda and other celebrities. The coalition of opposition battled nuclear power on several fronts, demonstrating at plant gates and marching in the streets of Washington. One of the opponents' most effective weapons was forcing the projects into legal battles that delayed programs and increased construction costs.

The event that really pushed the anti-nuclear movement and rocked the industry occurred early in the morning of March 28, 1979. Several water pumps stopped working at Metropolitan Edison's Unit 2 at Three Mile Island, a station southeast of Harrisburg, Pa. If everything had been handled properly, the event might have resulted in nothing more than a brief shutdown for the year-old plant.

But a series of operator errors compounded the machinery's malfunctions. Within a matter of hours, the reactor's radioactive core had become temporarily uncovered, and the reactor had come closer to a meltdown than anyone knew — or at least admitted — at the time.

Coming only two weeks after the release of the film The China Syndrome, which depicted safety problems in the nuclear industry, the T.M.I, accident sent residents of the area fleeing for safety. Pennsylvania Governor Richard Thornburgh was forced to consider ordering a total evacuation of the region. The accident also caught both the industry and the NRC unprepared. No one knew exactly how to solve the problem. "What shook the public the most," said Gilinsky, "was seeing the men in the white lab coats standing around and scratching their heads because they didn't know what to do. The result was that accidents were taken seriously in a way they never had been before." T.M.I. 2 may not actually have suffered a meltdown, as industry spokesmen were quick to maintain, but the credibility of the industry and the NRC suffered.

The T.M.I, accident led to a lengthy investigation and an NRC list of some 6,000 steps that utilities had to take in order to improve the safety of their plants.

The expensive reforms involved operator training, the development of evacuation plans and the addition of a great deal of hardware. The safety search continues. Late last week, after workers discovered a large crack in a steam pipe at Georgia Power Co.'s twin-reactor Hatch plant at Baxley, the NRC ordered owners of five similar plants in the U.S. to search for possible cracks; all the reactors were temporarily closed. T.M.I, produced a much tougher attitude toward operators who broke safety rules. Until then federal law limited the fines that the NRC could impose to $25,000 for each violation. Soon after T.M.I., Congress removed that lid, and since then the NRC has been handing out higher and higher fines. Last February electric circuit breakers at the Salem plant of New Jersey's Public Service Electric & Gas twice failed to function properly, preventing an automatic emergency shutdown of the reactor. In May the NRC levied a fine of $850,000, the biggest in its history, against PSE&G for attempting to restart the plant without recognizing that anything was wrong. Applying the lessons of T.M.I, has cost the nuclear power industry billions of dollars and significantly slowed its expansion. New safety equipment has added millions to the cost of both existing reactors and those under construction.

Changes in the licensing process and opposition from environmentalists have stretched out the time it takes for plant approval and construction from seven years in the early 1960s to as long as 14 years now. It would be unfair and unrealistic, however, to blame all of the industry's problems on the accident and its aftermath. The industry's ailments are due to a whole congeries of factors. One of the most important was the twin oil shocks that hit the world during the 1970s. The first occurred in 1973-74, when the Organization of Petroleum Exporting Countries raised the price of oil from about $2.50 to more than $11 per bbl. Then Arab members of OPEC cut off oil exports to the U.S. The steps triggered long lines at gas stations and led the U.S. to look for a quick technological fix for its fuel problems. Nuclear power seemed like just the answer to some, and President Richard Nixon launched his much ballyhooed "Project Independence." It set the goal of obtaining half of American electricity from nuclear power by the year 2000. The objective made good sense at the time.

Demand for electricity had been rising steadily, increasing an average of 7% a year for more than a decade.

In some parts of the Sunbelt, demand was doubling every seven years, practically overnight in an industry that normally plans on a 15-to-20-year schedule. The world of energy economics, though, was about to change. After the second oil shock, in 1979, which followed the overthrow of Iran's Shah, the price of OPEC crude reached as high as $40 per bbl. Energy consumers reacted to the staggering prices by conserving fuel in a way that had never been imagined. Demand for electricity increased by only 1.7% in 1980 and .3% in 1981 and actually shrank 2.3% in 1982. That was the first decline in power use since the end of World War II. The lower energy consumption placed the power industry in an awkward position: the supply of electricity far exceeded the demand. American utilities now have about 30% more generating capacity than they need, far more than the 20% to 25% generally considered sufficient to meet unusual weather-caused emergencies or to assist neighboring utility companies. In response to the lower energy demand, some utility companies slowed or halted construction of new plants, whether coal or nuclear.

Indeed, more plants — 18 — were canceled in 1982 than in any other year since the U.S. first went nuclear. Encouraged by the strongly pro-nuclear Reagan Administration, other utilities ignored the omens and pressed on with plans to expand their generating capacity in expectation that demand would soon come back. Still others kept building nuclear plants on the ground that it was often more economical to complete the multibillion-dollar projects than to abandon them. That assumption sometimes proved erroneous. Constructing nuclear plants has proved very expensive. In the early 1970s, says Charles Komanoff of the New York City-based consulting firm Komanoff Energy Associates, there was little difference in the construction costs of nuclear and coal-burning plants.

Nukes cost $200 per kilowatt (kW) to build, coal plants around $175. But nuclear construction prices quickly began climbing. By the late 1970s, Komanoff says, nukes cost $700 per kW, compared with $500 for coal plants. Now, with post-T.M.I. requirements pushing the price of nuclear construction even higher, coal plants are clearly more economical. According to Komanoff, a coal-fired plant with state-of-the-art pollution-control equipment can be built today for around $1,200 per kW; a nuclear plant costs $3,000 per kW. Says Komanoff: "The power industry may really have made only one forecasting mistake, and that was that nuclear plants would become cheaper." That one mistake would have been bad enough, but the industry also committed several others.

The most obvious was poor management of plants under construction. Industry analysts agree that all too many nuclear projects have been badly conceived, poorly designed and inadequately controlled. Each U.S. nuclear plant is in effect a custom-made affair. The industry has failed to follow the lead of such countries as France and Canada, which have adopted standardized reactor designs. Such blueprints would allow modifications made on one plant to be copied at others in the series. Each American plant must now be checked out individually, and the lessons learned from operating one are difficult to apply to others. The construction of facilities, which is generally done by a veritable army of subcontractors under the direction of the utility, is often poorly supervised. The result of this laxness is work that can best be described as shoddy. Some of the earthquake supports for California's Diablo Canyon plant were installed backward, as was the reactor vessel at the San Onofre plant near San Diego. Reactor supports at Comanche Peak in Texas were installed 45° out of position. Pipes inside and outside the reactor building at Shoreham on Long Island, N.Y., failed to meet properly and had to be connected with elbow joints. One reason the nuclear industry has been so prone to glitches is that it plunged into building atomic plants on a grand scale before it had enough experience and expertise.

The danger of radiation release makes the precision required in putting up a nuclear plant much greater than the accuracy needed in an ordinary coal-fired facility. "It's like building a giant Swiss watch," says David Freeman, a director of the Tennessee Valley Authority, which operates two atomic plants. Many nuclear construction crews tried to build these Swiss watches with little more than the skills needed to hammer together a coal burner. Delays and repairs have led to catastrophic cost overruns, which have plagued many plants completed in recent years as well as some of those currently under construction. Florida's new St. Lucie 2 facility, which was built and brought on line in six years for $1.4 billion, about four times its original estimate of $360 million, is considered an industry bargain.

So is the Palo Verde complex, three 1,270-MW units 50 miles west of Phoenix. It is looked upon as a success by current nuclear industry standards because the expected final cost of some $6 billion is only about double the original estimate of $2.8 billion. A study released in January by the Energy Information Administration, a division of the Department of Energy, showed that 36 of the 47 nuclear plants surveyed cost at least twice as much as initially projected, while 13 of them were four times higher. Among the most expensive of these nuclear white elephants:

SHOREHAM. Overlooking the sound on the North Shore of New York's Long Island, this 1,100-MW plant was supposed to cost $241 million when it was started in 1965 and was expected to go on line in 1975. Now nearly a decade behind schedule, the plant will cost at least $4 billion, or 15 times the original estimate, and could run the Long Island Lighting Co. (Lilco) even more before it produces any electricity. The utility last year had a continuing battle with Suffolk County officials over the approval of evacuation plans in case of an accident. The emergency procedures were finally approved, but now the plant's diesel generators have been found to be defective and may have to be replaced. The utility's chairman, Charles Pierce, resigned suddenly last week. He gave no reason, but the company's board was reported to be unhappy with his handling of the problems at Shoreham.

SEABROOK. Besieged by members of the Clamshell Alliance and other environmentalists, the two-reactor Seabrook plant was begun by Public Service Co. of New Hampshire in 1976 and was slated to cost $973 million. Unit 1, which stands near the coast, may be ready in July 1985, but the company is making no predictions as to when—or whether—Unit 2 will be completed. The utility is currently revising both its construction schedule and the cost projections for the whole project. The most recent estimate: $5.8 billion.

MIDLAND. Conceived as a cooperative venture that would supply Michigan's Consumers Power Co. with electricity and a neighboring Dow Chemical plant with steam, the two-unit, 1,300-MW project on Michigan's Tittabawassee River was launched in 1969. It then carried a $267 million price tag. The problem-plagued development is currently nine years behind schedule and egregiously over budget. Company officials say that construction, now 85% complete, has al ready cost $3.4 billion.

The impact of such overruns on the companies involved is enormous. Lilco, which concedes that it now has a cash-flow problem, is paying more than $1 million a day in interest on its Shoreham loans and losing $1.5 million for each day that start-up is delayed. New York Governor Mario Cuomo said last week that he doubted Shoreham would ever begin operating and that he saw no reason why the state should bail Lilco out of its losses. "Let them take a bath," he said. "They're a private corporation."

Consumers Power Co. is spending $1 million a day in interest payments to keep its Midland project going. Consumers Power's long-term debt now exceeds the firm's shareholder equity by more than $1 billion; Chairman John D. Selby has warned that if the twin reactors are not finished, the company, which has 1.3 million electric customers, could be forced into bankruptcy proceedings. The credit ratings for bonds issued by several utilities have been lowered. Moody's Investors Service dropped the ratings on bonds put out by Public Service Co. of Indiana from Baa2 to Ba2 after the company announced that it was abandoning the Marble Hill plant. Standard & Poor's has warned Illinois' Commonwealth Edison that its B1 rating of the utility's commercial paper was put on credit watch because of the NRC's denial of an operating license for the Byron units.

These actions hamper the companies' efforts to raise capital and keep their nuclear projects going. They also hit utility stockholders, who may see the value of their investments shrink. The price of Lilco's stock dropped last year from $17 to $10.13, costing the company's 181,127 stockholders an estimated $70 million. The ultimate victims may be consumers. Lilco customers, who already have the highest electricity bills in the U.S., can expect to pay up to 50% more to help cover the costs of building the Shoreham plant. Public Service Co. of New Hampshire is prevented by law from imposing the expense of construction work at Seabrook on the public until it is receiving power from the plant. If Seabrook 2 ever goes on line, the company will have to increase rates by 40% to 50% to recover its investment. Consumers may not even be spared from paying for abandoned nuclear operations. Companies like Public Service Co. of Indiana are seeking permission to pass part of their loss on to customers in the form of higher fees. Many antinuclear activists see recent events as confirmation of all their dire predictions. "This is a failed technology," says Melody Moore, director of Chicago-based Citizens Against Nuclear Power. Even businessmen sympathetic to nuclear energy as a source of electric power are pessimistic about its future. "Nuclear power is well into free fall. It's beyond recovery," says John Nichols, president of Illinois Tool Works, a diversified manufacturing firm.

Utility company executives are bitter about their present plight. Says Don Beeth, director of nuclear information at Houston Lighting & Power: "The first lesson we've learned is 'Don't build nuclear plants in America.' You subject yourself to financial risk and public abuse." William Dickhoner, president of Cincinnati Gas & Electric, sounds a similar note: "It's almost a punitive deal to open a nuclear plant these days."

A few utility executives question the future of nuclear power in the U.S. "Some days I think I may be building the last nuclear plant that's going to be built for a while," says R.E. Conway, the senior vice president of Georgia Power. "They are just too expensive for a company like us to construct any more." Georgia Power's Plant Vogtle, a two-unit facility now more than 50% complete, is expected to come on line at ten times its original price tag of $660 million. For many utilities, nuclear plants are far too costly. The huge, quasi-governmental Tennessee Valley Authority made a commitment in the 1960s to generate most of its electricity by nuclear power.

Since August 1982 the giant utility has canceled four nuclear units and taken a $1.8 billion loss. Now it is turning back to coal. "We recognized the situation we were in and took the most prudent action," says Hugh Parris, manager of power at TVA. "Some folks might look at abandoned nuclear plants as monuments to mistakes and stupidity. I look at them as monuments to good management." Despite these myriad troubles, however, the majority of utility company executives feel the nuclear power industry will survive. Says Commonwealth Edison Chairman James O'Connor: "We have limited options in the ways we can produce electricity. It's important not to lose sight of the considerable role nuclear energy plays. Very little attention has been paid to the pluses, too much to the negative side of the industry. I would not over time write off the nuclear option." Many Government officials agree. Says Secretary of Energy Donald Hodel: "I think it will come back. I think eventually the U.S. will say we need a continuing nuclear component." Edward Merrow, director of energy policy programs at the Rand Corp., believes nuclear energy is inevitable. "It is the only real energy alternative that appears viable," he says. "Coal is an alternative, but it is problematical, what with environmental difficulties and acid rain." Merrow's point is well taken. American energy needs are bound to increase, even if slowly, particularly if the current economic recovery continues. Other sources of energy will simply not meet future U.S. power demands. Oil is too valuable as an aircraft and automobile fuel and as a raw material for petrochemicals to be used to generate electric power. Only 6% of American electricity comes from oil-burning plants, and that figure is likely to shrink. Natural gas is better used as a heating fuel, and its share of electricity generation has gone down sharply in the past two decades.

Alternative energy sources are not ready to play a big role in electricity generation. Neither solar nor wind energy is sufficiently developed to produce large amounts of electric power. Solar panels are being more widely used on new homes, particularly in the Sunbelt. But even solar's most ardent backers do not argue that sun power can generate enough electricity to become a major energy factor.

Windmills provide some supplemental power at experimental installations around the U.S., especially in California, but few utilities can rely on them because of problems with cost, reliability and durability. Nuclear fusion, in which light atoms of hydrogen, extractable from sea water, are fused to provide energy, is likely to remain an elusive dream for the remainder of the century. Scientists have yet to achieve a self-sustaining fusion re-action in the laboratory, much less design a commercial fusion reactor.

The U.S. could rely more on coal to meet its energy requirements, and the idea is appealing. The U.S. has abundant coal reserves — enough, according to some estimates, to last 200 years — and coal-burning plants can be built more quickly and cheaply than nuclear ones. But coal facilities pump thousands of tons of sulfur oxides and other pollutants into the air each day. They are the prime cause of acid rain, which is slowly destroying some U.S. and Canadian lakes and may be damaging forest areas. Despite their lower construction costs, coal plants are no cheaper to run than nuclear ones.

The Atomic Industrial Forum, which represents the nuclear industry, reported that nuclear-generated power actually undersold coal-produced electricity, 3.10 per kilowatt-hour (kWh) to 3.50 in 1982. Figures compiled by United Engineers and Constructors, an energy consulting group, showed that nuclear power cost 3.20 per kWh, while coal was 3.190. Contrary to a widespread impression, nuclear plants can be run well and economically. The 830-MW Maine Yankee Atomic Power plant in Wiscassett, Me., has operated reliably since it first went on line in 1972. The plant established a world record for performance by working 392 consecutive days without shutting down during 1977 and 1978 and was in service 79% of the time last year. Yankee Atomic Electric's plant in Rowe, Mass., has been producing 185 MW without an accident since it started up in 1961. The Trojan plant on the Oregon side of the Columbia River was completed in 1975 at a cost of just $460 million. It provides some of the cheapest thermal energy in the U.S. (2.50 per kW) and has a good safety record. Even the most ardent nuclear power advocates admit that the industry must change in order to survive and expand. The industry could help itself by developing standardized reactors and revamping management procedures so that construction could be handled by a single experienced company rather than confederations of subcontractors. The industry must also be more sensitive to public concerns about safety and the disposal of nuclear wastes.

Regulatory reform is necessary to cut through the paperwork that can delay projects and increase construction costs. Says Cincinnati Gas & Electric's Dickhoner: "You can't build something when you have 285 regulatory changes while it's being built." Such reforms could help the nuclear industry without endangering public health.

Despite the fears about safety, the difficulties of disposing of waste materials and the outrageous construction-cost overruns, nuclear power is not finished. The atom will be part of America's and the world's energy future. "We'll all live to see the building of additional nuclear plants down the road," says W.S. White, chairman of Columbus & Southern Ohio Electric Co. The U.S. may never have to rely on nuclear power to provide most of its energy, but it does need reactors for a large portion of its electricity. American consumers want to continue flicking light switches and turning on appliances without worrying about where the power will come from. The American economy depends on an expanding supply of energy to continue growing. Moreover, the U.S. needs a secure, reliable energy supply that is not subject to disruption by political upheavals abroad. In short, the nation requires a mixture of energy sources to drive its economy in the future, and nuclear power should be part of that mix.

With reporting by Jay Branegan, J. MADELEINE NASH